If I bought a car, can I claim it on my taxes? A detailed guide

You can’t usually claim the cost of a car on your taxes if it’s for personal use. But if you use the car for business, certain deductions may apply. You may also qualify for specific benefits like sales tax (if you itemise) or a clean vehicle credit (for certain EVs). The real deciding factor is simple: how you use the vehicle and what tax rule you’re claiming under.

Personal Use vs Business Use

If you bought a car mainly for:

• groceries, school runs, or family use (no deduction for the car)

• commuting to a W-2 job (generally no deduction)

• running your business or self-employment work (you may be able to deduct the business-use portion)

The IRS allows car deductions when the vehicle is tied to earning business income, not personal convenience.

If It’s Personal Use, Can You Deduct Anything?

For most people, no. You can’t deduct:

• The purchase price

• Monthly loan payments

• Insurance

• Repairs and maintenance

• Fuel

Personal vehicles are considered non-deductible living expenses. That said, there are a few specific cases where car-related costs may still matter on a tax return.

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When You Can Claim Car Costs on Your Taxes

1) You’re Self-Employed or You Own a Business

If you’re self-employed (freelancer, contractor, gig worker, or business owner) and you use the car for business, you can generally deduct business-related driving. You usually choose between two methods:

Option A: Standard Mileage Rate

You track business miles and multiply by the IRS rate.

• 2024: 67 cents per business mile

• 2025: 70 cents per business mile

• 2026: 72.5 cents per business mile

This method is popular because it’s simpler, but it requires a mileage log.

Option B: Actual Expense Method

You track actual vehicle costs, such as:

• gas or charging

• insurance

• repairs and maintenance

• registration and fees

• depreciation (for owned vehicles)

• lease payments (for leased vehicles)

• interest (business portion only)

Then you apply your business-use percentage.

Example: If total vehicle costs are $10,000 and the vehicle is 60% business use, you may deduct $6,000.

2) You’re a W-2 Employee Using a Car for Work

In most cases, W-2 employees can’t deduct unreimbursed work mileage on the federal return due to the suspension of miscellaneous itemised deductions for most employees through tax years 2018–2025. If your employer doesn’t reimburse you, that’s frustrating, but it’s generally not deductible on the federal return during this period.

(Important: some states may still allow certain deductions on state returns depending on state law.)

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Can You Deduct Sales Tax When You Buy a Car?

Sometimes but only if you itemise deductions. If you itemise, you may be able to include state and local sales tax, including sales tax paid on a vehicle purchase, as part of your itemised deductions. This is usually most helpful in states with no state income tax, where people often choose to deduct sales tax instead.

What If You Bought an Electric Car or Plug-In Hybrid?

You may qualify for a Clean Vehicle Credit, but the rules are strict. The credit depends on:

• the vehicle’s eligibility

• where it was assembled / sourcing requirements

• your income

• purchase price limits

• whether it’s new or used

New clean vehicle credit (up to $7,500)

Income limits apply, and you can use the lower of your current-year or prior-year modified AGI to qualify.

Used clean vehicle credit (up to $4,000 or 30% of price)

This has different rules and income limits, and generally requires purchase from a dealer and price limits.

Because EV eligibility changes by model and year, the safest approach is to verify the exact vehicle against IRS guidance and the seller’s eligibility documentation.

What About Leased Cars?

If the car is leased and used for business, you can usually deduct the business-use portion of:

• lease payments

• operating costs (fuel/charging, insurance, maintenance)

You still need to track business use (mileage or percentage).

When a Car Is Deductible

Car-Related Deductions That Can Apply Even Without Business Use

These are more limited, but they exist.

Car donation to charity

If you donate a car to a qualified charity, you may be able to deduct the donation depending on what the charity does with the vehicle and the documentation you receive.

Medical mileage

If you itemise and your medical expenses qualify, you may be able to deduct medical travel mileage at the IRS medical rate:

• 2025: 21 cents per mile

• 2026: 20.5 cents per mile

Moving mileage (limited groups)

Moving mileage is generally limited to certain active-duty military and certain eligible groups under specific rules. The IRS sets a moving mileage rate separate from business driving.

What Records Do You Need to Claim a Car on Taxes?

If you’re claiming business use, keep:

• a mileage log (date, purpose, miles)

• receipts for fuel/charging, repairs, insurance, registration

• loan or lease documents

• proof of business-use percentage

If you ever have to justify your deduction, clean records are what protect you.

How SK Financial CPA Can Help

Car deductions sound simple, but people lose money by choosing the wrong method, missing logs, or claiming something they can’t defend.

We helps you decide:

• whether mileage or actual expenses saves more

• what you can safely claim based on your situation

• how to document everything properly

• how EV credits apply to your specific vehicle and income

With 24+ years of experience and 22,000+ tax returns prepared, our team helps you claim what’s allowed without risking errors that trigger IRS issues.

Conclusion

So, if you bought a car, can you claim it on your taxes. If it’s personal use, usually no. If it’s business use, there may be real deductions but only for the business portion and only if you keep proper records. EV credits and itemised sales tax can also help in the right situation.

If you’re unsure, it’s better to confirm the right method before filing instead of guessing after the fact.

FAQs

If I bought a car with cash, can I still claim it on my taxes?

Yes, if it’s used for business. How you paid doesn’t matter as much as how you use it.

Can I deduct car loan interest?

If you’re self-employed and using the car for business, you may deduct the business-use portion of interest.

Can I claim both mileage and actual expenses?

No. You generally choose one method for that vehicle for the year.

What’s the easiest way to track business miles?

Use a mileage tracking app or a simple logbook. The key is consistency and clear business purpose.

Can I switch methods next year?

Often yes, but the rules depend on what method you used first and whether the vehicle is owned or leased. For many owners, the IRS notes you generally must choose standard mileage in the first year to preserve certain flexibility later.

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